Landlord commission held not to be part of insurance premium

The Court has just handed down Judgment in London Trocadero (2015) LLP v Picturehouse Cinemas Limited & Others [2025].  On the particular wording of the relevant leases, insurance commissions paid to the landlord when insuring the Trocadero Centre were not  “premium” recoverable as insurance rent. These sums were not contractually due; and the tenant can recover such payments from the landlord.

Background

Picturehouse is the tenant of cinema premises at Trocadero Centre, Piccadilly Circus, London, owned by the claimant landlord, a group company of Criterion, pursuant to a lease granted in 1994 (and a supplemental lease in 2014 on the same material terms).

As is common in multi-occupied buildings, the landlord is responsible for insuring the Centre, which it does under a block policy, with a right of recovery from Picturehouse (and other tenants of the Centre).

Picturehouse’s liability for insurance rent is calculated by reference to the amount of the premium payable by the landlord for keeping the Centre insured.

The key issue was Picturehouse’s argument that it was not liable for insurance rent relating to the element of commission paid to the landlord, as this was incapable of forming part of the premium for keeping the Centre insured, on which insurance rent is calculated.

The Premium Issue

The relevant provisions of the 1994 lease obliged Picturehouse to pay:

“a proportionate part of the equivalent amount assessed … as being payable by the Superior Landlord by way of premium for keeping the Centre insured for an amount … necessary to cover the full costs of rebuilding or reinstating the Centre against loss or damage by the Insured Risks…”.

The evidence showed that the landlord received commission, sometimes up to 50% and 60% of the premium, which it charged to Picturehouse (and other tenants) as part of the insurance rent.

Interpretation of the Covenant to pay Insurance Rent

As a matter of construction, the Judge found that the word “premium” should not be construed in isolation. By reference to the terms of the 1994 lease as a whole, the meaning of premium was a premium “payable” (i.e. constituted a real cost to the landlord) for the “requisite purpose” i.e. for keeping the Centre insured.

The Judge concluded that even if the landlord commission formed part of the premium, it was rebated to the landlord and was not payable by the landlord. However, the Judge noted that if the rebate was a payment to the landlord for services, the “force of the point would be diminished”. 

In addition, in contrast to broker’s commission, the Judge found that the landlord’s commission was optional so, even if (notwithstanding his findings as above) outwardly payable “by virtue of its status as a component of premium, it was not “for … keeping the Centre insured …”. Rather, it was “for” providing the Landlord with an opportunity to profit at the Tenant’s expense”.

The Judge also considered the following points, amongst others:

• On grant of the lease, the tenant was committed to a 35 year term which precluded it from placing its own property owners’ insurance, making it a forced buyer of whatever policy the landlord obtained.
• Objectively, the parties could have contemplated that the landlord would have to do work to obtain insurance each year for which it should be compensated. If the lease does not provide for recovery expressly, then the indication is that the costs are an overhead or costs of the business for the landlord.
• In the Judge’s view, the landlord’s interpretation produced an unreasonable outcome but that alone was not determinative of the question of construction as to whether “the words of the 1994 Lease would indicate clearly to its audience that this unreasonable result was the true effect of the 1994 Lease”. However, the Judge did not accept the landlord’s argument that in 1994 there was a general understanding between larger commercial landlords and their tenants that landlords could receive and retain landlord commissions and that the premium paid to brokers would include such commission.

Implied Term

Picturehouse separately argued for an implied term precluding the landlord from charging insurance rent relating to landlord’s commission based on principles derived from the cases of Havenridge Ltd v Boston Dyers Ltd [1994] and/or Braganza v BP Shipping Ltd [2015].

Although the Judge did not need to deal with these arguments, given his decision, he expressed his conclusions in his Judgment.

The Judge concluded, in line with Havenridge, that it was obvious that the 1994 lease required the landlord to charge insurance rent that reflected a price agreed following an arm’s length negotiation. In this case, that meant an absence of any intention to confer a benefit on the landlord at the tenant’s expense. 

Braganza Implied Term

Picturehouse also argued that a Braganza implied term should apply to impose limits on the landlord’s discretion in selecting which policy to purchase from which insurer, based on concepts of  reasonableness, rationality and good faith.

However, the Judge did not consider that the 1994 lease conferred any contractual power on the landlord to decide which insurers to approach or how much commission to seek (and nor was any term pleaded) which could be the subject of a Braganza implied term.

Key points

• As a matter of interpretation of the 1994 lease in this case, commission paid to the landlord on the placement of the insurance policy was not part of the premium necessary for insuring the Centre against the insured risks.
• Sums reflecting landlord commission charged to the tenant were not, therefore, contractually due.
• The tenant could recover sums paid as landlord commission by restitution.
• In every case, interpretation will depend on the precise terms of the lease or contract.
• Other leases might include a landlord’s express right to recover landlord commission or landlord’s costs of providing services associated with the procurement of insurance.
• Tenants who have a valid claim for recovery of sums not contractually due will be subject to a six year limitation period.

Julie Gattegno of CMS led the team that represented Picturehouse, the successful tenant in this case.